Investors are hearing plenty about the resurgence of the value factor this year and the myriad exchange traded funds that offer exposure to one of the most revered investment factors. The iShares MSCI USA Value Factor ETF (NYSEArca: VLUE) should be part of that list.
VLUE screens a stock’s value relative to sector peers, so stocks from varying sectors are placed on a level field, according to Bryan. For example, a tech stock that looks cheap relative to its sector peers could pass VLUE’s screens, whereas an energy stock with even lower absolute valuations may not pass the test.
While the sector-neutral approach may help shield an investor against unintended exposure, VLUE will be more exposed to prevailing market moves – if a sector is richly valued, the ETF could have a greater tilt toward the area than other market-cap-weighted value indices. Additionally, VLUE does not necessarily go bottom fishing with downtrodden sectors.
“While technology stocks are often thought of as growth or momentum plays, the sector is VLUE’s largest allocation at 21%. This iShares ETF’s other interpretations of value include weights of more than 14% each to financial services and healthcare stocks,” reports InvestorPlace.
Value investing is a popular long-term investment strategy. Value stocks have historically outperformed growth stocks, or companies with high earnings expectations, in almost every market over the long-haul. For instance, the MSCI USA Value Index has outperformed the MSCI USA Growth Index by an annualized 81 basis points since 1974 through September 2015.
Value stocks typically trade at cheaper prices relative to fundamental measures of value, such as earnings and the book value of assets. In contrast, growth stocks tend to run at higher valuations since investors expect rapid growth in those company measures.